– c70% of respondents say they are seeking to enhance risk management processes –

Business confidence and the outlook for future growth is on the rise as companies seek new and additional lines of credit and show a marked increase in their appetite for risk.

These are the conclusions drawn from the Institute of Credit Management (ICM) Credit Managers’ Index (CMI – Q2 2014) that shows a headline index that has been on an upward trajectory for the last six quarters and now stands at 59.2 – 10 points up on the low of September 2012.

The CMI, sponsored by Tinubu Square, is important because it gauges the levels of credit being sought and granted by credit managers across both the Manufacturing and Services sectors, and therefore acts as a primary indicator of actual levels of business being conducted.

The latest survey notes a further improvement in Services (up 1.2 to 59.7) and a slight dip in manufacturing (down 2.7 to 58.0), although both areas remain healthy. New applications for credit have risen by 2.8 points to a high of 67.2, although order book levels have fallen by 3.4 to 69.9, perhaps due to the trend for longer term contracts to impact the figures.

Philip King, Chief Executive of the ICM, says that the number of applications for credit that are being rejected has increased (up 3.7 to 53.7) in line with an increase in bad debt provision (up 2.8 to 55.4) and a fall in the number of disputes (down 3.4 to 50.5): “The increase in rejected applications mirrors the rise in requests,” he says. “Put simply, if you increase the number of requests, then the number of applications refused will rise accordingly.

“But combined with an increase in bad debt provision, the figures suggest that the appetite for risk is becoming significantly stronger,” he continues, “and that means that businesses are more confident of their future prospects.”

Improvements were recorded across all industry sectors, although at 46.3, Basic Resources (ie metals) still remains below the critical 50-point threshold. Credit Managers within Retail and Food & Drink companies also remain confident, despite warnings of further business failures.

Respondents are also asked a special question in relation to where they see the greatest need for improvement in their risk management operations. Over a quarter said it would be by minimising their exposure to risk, which was particularly reflected by respondents working in the construction industry. Some 18% said ‘gaining detailed intelligence on the credit worthiness of customers’, and a further 18% by ‘reducing days sales outstanding’ (DSOs).

Whilst the vast majority said that they would review existing processes as one of their top two actions to improve risk management, the second most urgent action was to ‘improve cashflow forecasting’. Of those that said they would invest in technology to benchmark and track performance, 46% were based in London or the South East.

“The overall impression is that the industry is looking at the best ways to improve cash flow whether this is through better forecasting or by investing in technology,” says Mike Feldwick, Head of UK & Ireland at Tinubu Square.

Mr King believes the Index, and businesses attitude to risk management, is yet further evidence that the UK is on the road to a sustained recovery: “The improvements demonstrate the benefits of having robust credit management processes and professional credit managers to facilitate new business and keep the cash flowing,” he says.

The latest CMI prompted some 500 responses from credit managers in companies of various sizes broadly split by region, although slightly weighted to businesses in London and the southeast.

The CMI is a diffusion index, producing ‘scores’ of between one and 100 (typically in a range of 40 – 60). Ten equally weighted factors are included – three favourable and seven unfavourable – and the index calculated on a simple average of the 10 factors.